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Commissioner of Income-tax (Central) Vs. Southern Fisheries Corporation - Court Judgment

LegalCrystal Citation
SubjectDirect Taxation
CourtKerala High Court
Decided On
Case NumberIncome-tax Reference No. 28 of 1970
Judge
Reported in[1973]89ITR126(Ker)
ActsIncome Tax Act, 1961 - Sections 271(1)
AppellantCommissioner of Income-tax (Central)
RespondentSouthern Fisheries Corporation
Appellant Advocate P.A. Francis and; P.K. Ravindranatha Menon, Advs.
Respondent Advocate V. Rama Shenoi and; R. Raya Shenoi, Advs.
Excerpt:
.....of which the particulars have been concealed or inaccurate particulars have been furnished. of the total income (hereinafter in this explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purposes of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this sub-section. of the total income as assessed and therefore it is for the..........have been concealed or inaccurate particulars have been furnished. explanation.--where the total income returned by any person is le?s than eighty per cent. of the total income (hereinafter in this explanation referred to as the correct income) as assessed under section 143 or section 144 or section 147 (reduced by the expenditure incurred bona fide by him for the purposes of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of clause (c) of this.....
Judgment:

Subramonian Potti, J.

1. The reference before us is under Section 256(1) of the Income-tax Act, 1961, and the question referred by the Income-tax Appellate Tribunal, Cochin Bench, is :

' Whether, on the facts and in the circumstances of the case, the Appellate Tribunal was right in cancelling the order of penalty passed by the Inspecting Assistant Commissioner under Section 271(c) read with the Explanation thereto '

2. The assessee is a firm of two partners. This firm took over the business of another firm in which the partners of the assessee-firm were also partners. The business was one of processing and exporting of prawns. The assessee filed its return for the assessment year 1964-65 showing an income of Rs. 2,785.47. In arriving at this income the closing stock of the business had been valued at Rs. 7,03,123. The assessee had worked out the cost per pound on the basis of the total cost of production divided by the total quantity of raw materials. The Income-tax Officer took the view that there was under-valuation of the closing stock as, according to him, the closing stock should be valued on the basis of total cost of production as divided by the quantity of processed or finished stock. On this basis he added Rs. 2,76,698 to the value of the closing stock as returned by the assessee. Penalty proceedings were initiated under Section 271(1)(c) of the Income-tax Act, 1961, in regard to this sum of Rs. 2,76,698. In response to the notice issued under Section 271(1)(c) the assessee explained that the difference in the closing stock valuation was due to the difference in the method adopted by the assessee, that the same method had been adopted by the firm whose business was taken over by the assessee and this method had been accepted by the department. It was contended by the assessee that even if the method adopted was found to be wrong, it would not amount to any fraud or wilful neglect on the part of the assessee. This explanation did not find favour with the InspectingAssistant Commissioner who imposed a penalty of rupees two lakhs. Against this an appeal was taken to the Income-tax Appellate Tribunal which, by its order, cancelled the imposition of penalty and directed the Income-tax Officer to refund the penalty amount. The Tribunal, in paragraph 6 of its order, found thus :

' After having heard the parties we are not satisfied that the understatement of income was due to any fraud or any gross or wilful neglect on the part of the assessee. The assessee has merely adopted a method of valuation followed by the predecessor firm and accepted by the department.'

3. Section 271(1)(c), together with the Explanation, reads as follows :

'271. (1) If the Income-tax Officer or the Appellate Assistant Commissioner, in the course of any proceedings under this Act, is satisfied that any person ...

(c) has concealed the particulars of his income, or furnished inaccurate particulars of such income, he may direct that such person shall pay by way of penalty,--. . .

(iii) in the cases referred to in Clause (c), in addition to any tax payable by him, a sum which shall not be less than, but which shall not exceed twice, the amount of the income in respect of which the particulars have been concealed or inaccurate particulars have been furnished.

Explanation.--Where the total income returned by any person is le?s than eighty per cent. of the total income (hereinafter in this Explanation referred to as the correct income) as assessed under Section 143 or Section 144 or Section 147 (reduced by the expenditure incurred bona fide by him for the purposes of making or earning any income included in the total income but which has been disallowed as a deduction), such person shall, unless he proves that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part, be deemed to have concealed the particulars of his income or furnished inaccurate particulars of such income for the purposes of Clause (c) of this sub-section.'

4. It is agreed that this is a case in which the total income returned by the assessee is less than 80 per cent. of the total income as assessed and therefore it is for the assessee to prove that the failure to return the correct income did not arise from any fraud or any gross or wilful neglect on his part. On the facts, the Tribunal has found that the assessee had discharged the onus of proving this.

5. That the firm from which the assessee had taken over the business had been adopting the same method of valuing the closing stock as employed by the assessee had been found by the Tribunal. That this method has been accepted by the department is also found in the order of the Tribunal. This circumstance has been found to be sufficient to warrant the inference thatthere could not have been any fraud or gross or wilful neglect on the part of the assessee. We see no reason to come to a different conclusion on the facts. To our mind, it appears that the assessee could not have been guilty of fraud or gross or wilful neglect if he was only adopting the same method of accounting as was done by the department.

6. In the result, we answer the question referred to us in the affirmative and in favour of the assessee. Parties will suffer costs.

7. A copy of this judgment under the signature of the Registrar and the seal of the High Court will be sent to the Income-tax Appellate Tribunal, Cochin Bench, as required under Section 260(1) of the Income-tax Act, 1961.


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